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The Market
Blue chips finished a strong session just below their best levels for the day on Friday, recovering after Thursday's drab showing thanks to a mixture of speculative interest, gains from technology issues with Nasdaq's further surge, and a rally after early profit taking by the DJIA. At the Friday close, the FTSE 100 index was 143.9 points higher at 6,738.5 points, not far below the peak of 6,755.1 points reached at 3.55 p.m.
All the broader FTSE indices also posted good gains. Volume remained strong with 1.789 billion shares changing hands in 150,784 transactions. Vodafone AirTouch was again the biggest traded stock, with 137 million shares going through as the market continued to digest this week's massive placing of 925 million shares in the group previously owned by Hutchison Whampoa.
London shares made healthy progress from the start today, boosted higher by an overnight leap on Wall Street, particularly from the DJIA which advanced over 250 points, supported by big gains in Microsoft on hopes for an anti-trust settlement. With a lack of much corporate news to provide direction, bid speculation - both new and old - provided an early focus, with Freeserve the first beneficiary on talks of a merger with World Online. Strength in other technology issues was also a feature after Nasdaq's gains.
London shares maintained their strong performance throughout the morning session and in to the afternoon, as the raft of bid rumours was expanded, with talk that Bank of Scotland was set to fall prey to Lloyds TSB the strongest call. Some uncertainty over a possible weaker restart on Wall Street pulled UK blue chips back from a midday peak, with profit taking expected, and the latest US data mixed. US durable goods orders saw an unexpected fall of 2.3 per cent in February, against a predicted 0.4 per cent decline. The fall was the largest drop since April 1999, when orders fell 2.4 per cent. However, much of the blame was placed on the transportation sector, with the figure excluding that sector, down 0.2 per cent in line with expectations.
UK blue chips were boosted by a raft of speculative interest, with bid stories, both old and new, doing the rounds on an otherwise fairly quiet Friday. Sun Life & Provincial remained at the top of the FTSE 100 index leader-board, up 129 1/4 pence at 457 pence, after AXA revealed that it is in talks to buy the outstanding 43.7 per cent stake in the UK group, though no indication of price was given. Freeserve was also well-bid, up 68-1/2 pence at 512-1/2 pence, despite news that World Online has no plans to bid for the Internet portal company - though some traders are still hopeful that some sort of tie-up will be made.
Dixons, which holds an 80 per cent stake in Freeserve, rose 14-1/2 pence to 300-1/4 pence. Vague bid rumours also circulated around Bank of Scotland, up 32 pence at 712 pence, with Lloyds TSB - ahead 33 pence at 655 pence- reported as a possible bidder. Abbey National, until today the most touted bid candidate in the bank sector, also saw fresh demand, up 58-1/2 pence at 831 pence.
However, analysts pointed that in the wake of this week's critical Cruickshank report, and with Royal Bank of Scotland's takeover of NatWest still to clear the regulatory hurdles, imminent further consolidation moves in the sector were pretty unlikely.
Cable & Wireless, ahead 76 pence at 1,339 pence also attracted fresh speculation interest as talk of a possible bid for the group was revived. GUS, up 13 pence at 419-3/4 pence, was lifted by a revival of break-up speculation, with rumours earlier this week suggesting that either KKR or Nomura could make a move.
J Sainsbury, ahead 6-3/4 pence to 294-1/2 pence, benefited from e-commerce announcements, with ABN Amro rating the stock as a 'buy' and HSBC Securities rating the stock as a short-term trading buy, though its long-term stance remains cautious. Meanwhile, Tesco also saw strong demand, up 3-3/4 pence at 197-3/4 pence, with over 48 million shares traded. However, earlier reports of an upgrade in rating from Merrill Lynch were denied by the broker. But Carlton Communications, up 52 at 778-1/2 bid benefit from news of an upgrade by Merrill - to long term 'buy' from 'accumulate'.
Shell, off 15-1/2 pence at 480-1/2 pence, took the opportunity to buy back 2.1 million shares. National Power, down 3-1/4 at 316-3/4 reflected an WestLB Panmure rating downgrade to 'underperform' from 'neutral', with a 12-18 month price target of 315 pence.
Property stocks enjoyed some good support amid press talk that the under-performing UK property stocks should be wound up and the proceeds delivered to shareholders. Blue chip Land Securities added 36 pence at 778 pence; on the second line British Land rallied 28-1/2 pence to 397-3/4 pence, while Slough Estates added 28-1/2 pence to 352 pence and MEPC gained 32 pence at 420 pence. Elsewhere, Cobham, up 83-1/2 pence at 893-1/2 pence, reflected ABN Amro 'undervalued' advice.
Tech stocks stood out among the FTSE 250 gainers, in reaction to the continuing gains on the Nasdaq index. Morse Holdings firmed 47-1/2 pence at 590 pence, NXT gained 117-1/2 pence at 1,755 pence, Durlacher took on 247-1/2 pence at 2,650 pence and Royalblue advanced 105 pence at 1,715 pence. QXL.com headed the second line risers list, adding 391 pence at 1,475 pence, also excited by a report in the FT suggesting that Yahoo! and e-bay have revived merger talks, first hinted at the start of this month. Scoot.com rose 17 pence to 266 pence as SG Securities began coverage of the stock with a 'buy'.
Eidos, however, missed out on the sector strength after the group issued yet another profit warning, its second in less than three months. The games publisher said its full year results will be 'significantly' below last year's levels, with retail ordering levels lower than expected. Eidos accompanied the warning with plans to sell the majority of its stake in Opticom, on which it expects to make a £84 million profit. Eidos shares plunged 230 pence to 375. Even house broker Dresdner Kleinwort Benson turned more cautious, moving the stock back to a 'hold' from a 'buy'.
Smaller company shares ended the session firmer, taking their lead from the strong performance seen in their blue chips counterparts as tech and telecom stocks were boosted by opening rises on the DJIA and Nasdaq, dealers said. The FTSE Smaller Cap index finished the session up 7.3 points at 3399.22 points, just shy of its 3400.7 high and well above its low of 3395.9.
In a session characterised by merger speculation, Laser-Scan jumped 40 per cent- up 11 pence at 38-1/2 pence - after mobile navigation company Yeoman Group disclosed it was in discussions regarding a possible bid for the group. Yeoman also confirmed it had acquired a 29.4 per cent stake in Laser-Scan at 40 pence a share. The hope is that an agreed deal can be hammered out and that the bid will proceed quickly. NHP also confirmed that it had received bid approaches from several parties, with its shares climbing 10-1/2 to 50. Market watchers suggested one of the potential predators could be insurance giant Norwich Union.
Pearson
Pearson, the education, information and television group, reported a 24 per cent drop in pre-tax profits
to £480 million for the year to 31 December. Notwithstanding these results, Pearson plans to seek a listing of its ordinary shares on the New York Stock Exchange (NYSE). Over half of Pearson's employees are based in the United States and a listing will enhance the group's ability to offer them equity participation in the company.
Pearson is stepping up investment in developing Internet enterprises, which capitalise on the power of its brands and content and generate new and distinct revenue streams. FT.com, now transformed into an international business portal, will launch its first major US marketing campaign later this month. Last year, FT.com trebled both revenues and traffic and Pearson expects it to sustain that level of growth.
Furthermore, Pearson expects to launch FTMarketWatch.com, a joint venture with MarketWatch.com, operator of America's leading finance website and the 36th most visited site in the world, in June. Pearson also plans to launch a French language personal finance website, modelled on FTYourMoney.com, its new UK personal finance website, by the autumn. These projects form part of the group's strategy of building a comprehensive network of leading European and US business and financial news, private investor and personal finance websites.
FT Knowledge, Pearson's management education business, is forming a new venture with The Wharton School of the University of Pennsylvania, to offer programs in eBusiness which will be delivered and supported on line. The full integration of the Addison Wesley Longman and Simon & Schuster businesses is on track and in good shape to deliver the planned $130m of annual integration savings by the end of 2000.
Pearson has several projects currently being developed with Pearson Television including children's animation. Penguin has linked up with Pearson Education to develop a global Penguin branded educational programme - known as Penguin Readers.
Pearson has also continued to improve the economics of its business, with the rationalisation of its US warehousing and distribution systems, and the successful integration of Ladybird in the UK, both helping to improve margins. Most of Pearson's business operations have made a strong start to the year and are in good shape to deliver further growth in revenues and margins. Pearson is expected to continue stepping up investment in developing the Internet enterprises that will secure Pearson's longer-term growth.
Please note that the value of investments, and income (if any) yielded by them, may fall as well as rise, and you may not recover the full amount of your original investment. Past performance is not necessarily a guide to the future.
James Dimech DeBono is a qualified accountant with a strong academic background in quantitative financial economics and a keen interest in investment management. He can be contacted by e-mail:
JamesDebono@CompuServe.com
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